Spending and sending money is easier than ever – you can transfer money via an app, pay by tapping your smart watch and invest using your smart phone, and cryptocurrencies promise to make financial transactions even more straightforward.

Based on blockchain technology, they enable us to transfer money with no fees and no bank, instantly. This is just the beginning of what digital currencies and blockchain technology can do.

Experts argue this financial revolution will open up the world’s economy to those who have corrupt governments or untrustworthy banks and could offer a previously unimaginable future, where machines could own and control their own money.

It’s as complex as it is fascinating as Edwina Stott discovers.

Guests

Professor Jason Potts - Director of the Blockchain Innovation Hub at RMIT University

Transcript

Edwina Stott: How many times have you done this today?

[Audio: cash register]

Paying for your coffee, your lunch, your bills, in fact paying for anything is likely to be a very different experience in the future.One of the possibilities is that we will digitise money and make the move to cryptocurrencies.

You've probably heard the term and seen stories about Bitcoin, maybe even Ethereum, and bits of news around governments attempting to regulate currencies. But do you know what they are? How they'll work? And the changes that may come with them?

Can I ask you a couple of questions?

Person 1: Yes, okay.

Edwina Stott: It's about cryptocurrencies and whether you know anything about cryptocurrencies.

Person 3: Cryptocurrencies? No. Is that sort of like the coins sort of thing, yeah?

Person 4: Like Bitcoin? No, not really.

Edwina Stott: I'm Edwina Stott, this is Future Tense, and this week, I'm hoping to make the confusing world of cryptocurrencies a little clearer for you.

Before we can even begin to get our heads around cryptocurrencies, we need to take a closer look at the technology behind it. Most of us have heard of blockchain, but how many of us really understand it? Created by a person or group of people under the pseudonym Satoshi Nakamoto, blockchain is a digitised, decentralised public ledger. Historically we've only created and introduced new ledger systems once every 1,000 years or so, and every time we have, monumental changes have occurred.

Jason Potts: I'm Professor Jason Potts, director of the Blockchain Innovation Hub at RMIT University here in Melbourne. So as far back as we've had economies and we've had history we've had ledger technologies, using numbers to record transactions. In about the 14th century we developed double entry bookkeeping, which was a fundamental breakthrough because it enabled us to audit these transactions. And double entry bookkeeping gave us essentially modern capitalism, it enabled us to build companies, it enabled us to audit these companies, it enabled us to trust in finance. In the 20th century we developed digital ledgers, otherwise known as databases. So this new technology enabled us to build global spanning companies and economies and to keep track of data.

In 2009 we have a fundamental new ledger technology that builds on those, which is to take all of these ledger technologies we had before and now for the first time ever we've been able to create decentralised ledgers. That's what a blockchain is, is a way to record the fundamental data of transactions of commerce, and this is what money does but it's also what accounting does. For the first time ever we've been able to do it this securely on the decentralised digital networks or on the internet. And because we've never had that before we've always had to have centralised ledgers which are curated and organised and managed by governments, by large corporations, by centralised authorities that we need to trust. This is where this notion of a decentralised ledger is also a trustless ledger in the sense that we don't have to pass transactions and information through a centralised node that we need to trust. That was what this was originally invented for, was as a new way to put money on the internet in such a way that it didn't require central banks or it didn't require governments to issue it.

Edwina Stott: Right, so does the fact that it's decentralised make it more or less secure?

Jason Potts: Counterintuitively, having a decentralised network is actually more secure than a centralised network. How a blockchain works is that it's a way to update a ledger. A decentralised ledger means that all of the information are stored on all of the nodes across the network.

Edwina Stott: Pssst, a node is just any computer that's connected to the blockchain network.

Jason Potts: At first sight that seems crazily inefficient compared to just having one ledger or one set of books that is kept in one place and kept safe and updated by a trusted authority, which is how we normally do these things. But when you think about the security of this, the problem with having just one node, a centralised node or a centralised book is that you really have to trust that that book is good and that that book is not being compromised or that whoever has access to that book is only using it for honest and good purposes. But what the blockchain technology does, to hack the information in this, you have to simultaneously attack a huge number of the nodes in this network, technically at least half of them, and you have to do that in a very, very short space of time. So while in principle a distributed network, a blockchain, is able to be compromised, it's incredibly difficult to do that.

Edwina Stott: So what do you think is going to be the biggest impact of blockchain technology and cryptocurrencies on the world economy? Is it that accessibility element or are there other things that will make a huge change to how the world economy operates?

Jason Potts: I think the changes will be profound. What we've got is a fundamental change in ledger technology, and ledger technology is the technology upon which economies are built. We've got a whole economy that is historically built on centralisation. We may not need that any more. We may be entering a world where firms just simply don't need to be as big to be efficient. This opens up access to the global economy or to participate in this in such a way that there is less benefits to having control of that power or to having control of these centralised networks. So I see this as actually producing a very…there's a vast sort of decentralisation or redistribution of how power works in modern economies, and I think this is all for the good.

Edwina Stott: That was Professor Jason Potts, director of the Blockchain Innovation Hub at RMIT University in Melbourne.

So blockchain is a new kind of digital, very secure ledger. But how does blockchain fit into Bitcoin?

Andreas Antonopolous is the author of Mastering Bitcoin and The Internet of Money. He is one of the most eminent figures in Bitcoin and is known for being able to explain it to anyone.

Andreas Antonopolous: So blockchain is one of the technologies that was introduced with Bitcoin. Bitcoin runs the very first blockchain, and it's one of the fundamental technologies but not the be-all and end-all of what this technology is. Bitcoin is a digital currency payment network and that is global, open, completely borderless, anyone can participate without permission. And it's a system that can send payments across the internet just by downloading an application.

Edwina Stott: So in the future do you see Bitcoin as something that will completely replace payment systems that we already have, or do you think it will integrate into existing systems that we've built?

Andreas Antonopolous: Neither. I think what has happened here is that Bitcoin doesn't replace because it's not playing a zero-sum game as the traditional national currency system. Bitcoin adds one more choice, and with the other 1,000 cryptocurrencies that emerged later, 1,000 more choices. And the idea now is we live in a world with many choices for currency. Some will be better for some things, some will be better for other things. And digital sophisticated programmable currencies with applications that can use them are much more flexible and will solve many more problems than traditional currencies. Of course that does mean that national currencies have to compete, and while there are more than a dozen very strong national currencies, there are also many countries that have weak currencies which put the population at significant disadvantage. And when people like that have a choice of using a strong currency that is global and mobile and they can do that using very simple smart phones or even simpler phones and a simple data plan, that's a pretty exciting opportunity.

Edwina Stott: And are there things that will happen in the future that we can't even comprehend yet? For example, like in the early days of the internet?

Andreas Antonopolous: Oh, without a doubt. One of the things that I always find fascinating which I think people have not yet grasped is that every single financial and payment system that has existed until today has the concept of personhood, which means that people are the expected account holders or controllers of money, or corporations which have personhood through the corporation. No one has considered the possibility of non-human actors, machines owning and controlling money independently of human actors, and potentially those machines themselves being owned independently of human actors by other machines.

So one of the really interesting things that happens when digital currency becomes a communications medium and it's kind of freed from some of the constraints of the past and you suddenly see a burst of imagination, you can imagine a situation where you have not just a self-driving taxi but a self-owning taxi, a vehicle that owns and controls itself and gives taxi rides to human beings.

Edwina Stott: And as if that example wasn't mind-blowing enough, Andreas says blockchain could also provide some amazing opportunities for fundraising.

Andreas Antonopolous: There is another concept that is really interesting which is having a decentralised autonomous charity, the idea of having a smart contract which is a programmable entity that runs on the blockchain that implements a charity through machine learning. So we know at the moment, for example, that Google can, just by looking at search results, figure out that there has been a natural disaster somewhere. And you can imagine a machine charity where you can contribute and then the machine charity follows patterns of searches, finds disasters and funds charitable giving to victims of natural disasters and things like that, with 100% of the proceeds going to the victims, and no directors, no management, no employees. Essentially it's a digital entity entirely.

Edwina Stott: Do you think there are any negatives that we haven't realised yet?

Andreas Antonopolous: With every technology you have a lot of rapid change, and both good people and bad people take advantage. But at the end of the day the good people outnumber the bad and they do more creative and interesting and powerful things with technology. And I think the outcome is a massive benefit. Part of that is that this technology brings billions of people potentially into a world economy, and that has never happened before.

Edwina Stott: Bitcoin isn't the only cryptocurrency powered by blockchain though. One of Bitcoin's main competitors is called Ethereum. Ethereum is different to Bitcoin though, as it's not just a currency.

I know this is a huge question, but how would you explain Ethereum to somebody who has no knowledge of cryptocurrencies?

Hi, I'm Vinay Gupta, I work for a thing called Mattereum, and I am a nerd.

Edwina Stott: Fully qualified, paid-up member of the nerd club.

Vinay Gupta: Oh yeah! Okay, give me the question again please.

Edwina Stott: Okay, Vinay, how would you explain Ethereum to somebody who has no knowledge of cryptocurrencies?

Vinay Gupta: So Ethereum is basically just software, and we are used to software but we don't usually watch it really closely unless we are in the field. So over the past 20 years we had this thing called the internet and the web, and then after a while there was this thing called the cloud. And for most people you kind of notice, okay, now I've got a phone, my phone has some apps, but you never really think about the software that is behind all of that stuff. So Ethereum is a new wave of the software that is behind everything and it is changing the way that all the backend stuff works. And over the next few years you'll see a whole bunch of new things appear on your phone or appear on your computer or maybe even appear in the world in the form of things like robots that are in some way connected to this Ethereum thing. But it's unlikely you're going to see it directly in your face on a day-to-day basis. It's a change in the infrastructure of society rather than in the applications that you are going to use day-to-day.

Basically each blockchain has its own currency. So the Bitcoin blockchain was the first one and it had a very simple set functionality because it was very, very early. And it's essentially a calculator. It adds and it subtracts. Ethereum comes along. Ethereum has a currency called Ether, and the Ethereum thing is a little more complicated than Bitcoin, it gives you the ability to write little programs called smart contracts, and the smart contracts manage things like…you know, you make a payment, if the goods don't come in in time then you could get a refund on your payment. Or you want to set a price for something and it basically says, well, the price will be go to the average of the last five offers. Those kinds of little bits of business logic. And those things don't happen on your computer or on my computer or in the cloud, they happen actually on the blockchain itself, so they are as secure as a Bitcoin transaction, which at this point in history is more or less perfectly secure.

Edwina Stott: So if you were to buy Ether from an exchange, you'd keep it in a wallet, just like you would regular cash. But that wallet isn't a physical thing, it's an app on your smart phone that you can access through a complex password.

The thing is though, that unlike keeping your money in a bank, if your wallet gets hacked or you lose your password or your money is stolen in some other way, it's gone, there's no way to get it back. I don't know about you, but as someone who regularly loses their debit card and has trouble keeping tabs on where their phone is, this makes me kind of uneasy.

Vinay Gupta: So when we talk about wallets, the way that you access your funds inside of these sort of systems is that you know a secret called a secret key, and the secret key is a long random-looking string of numbers, and as far as these blockchain systems are concerned, anybody that has that secret key, anybody that knows that long string of numbers is you, because these systems are bit like numbered Swiss bank accounts, anybody that turns up with the number is the owner of the account.

Now, in 10 years I'd be very surprised if that's still the case. I think we will build an identity layer so that instead of the account being tied to this one string of numbers and anybody who knows the secret is you, like a numbered bank account, I think instead we will see a situation where these things are attached to us personally and they will operate much more like regular bank accounts. So I think that this is a kind of early transformative phase of the technology when you've got this kind of volatility there, but I think in the long run in order for these systems to be usable by hundreds of millions or billions of people, these are technical problems that we have to solve.

Edwina Stott: Ethereum, like Bitcoin, is decentralised, which may also offer us more control over our money.

Vinay Gupta: So you've heard of cloud computing where you have these data centres all around the world, they are run by companies like Google and Amazon. Right now if we have a transaction, the odds are that that transaction will happen in the cloud. You know, you want to buy something you want to sell something, it's happening on Amazon, it's happening on eBay, and all those are cloud computing companies. The blockchain gives you the same kind of power that you get from cloud computing to do transactions, but it gives it to you without an Amazon or an eBay holding the transaction together. So if you want to buy something on eBay, right now you give the money to eBay and eBay gives the money to the person that you are buying the thing from and they sit there in the middle providing some regulation and some dispute resolution if something goes wrong and they kind of sit there to manage it.

But what this whole blockchain thing allows you to do, what Ethereum allows you to do is you can make the payment directly, and if something goes wrong it can be caught and somebody can untangle the problem, but that's a person that you and the person you are buying from pick rather than this kind of centralised monopoly which is there largely to resolve these kind of problems.

The whole decentralised thing really means that there is no corporation which owns the transactions you are making. If you're making a payment through a bank, in the middle of the transaction the bank owns your money. If the bank decides it doesn't want to make the payment, the payment stops and it takes you two weeks to figure out what happened. Similarly if you are buying something on eBay and eBay decides that something about the auction looked a bit fishy to it, the auction stops and you're not going to go anywhere.

So it's that process of having an intermediary that in some ways facilitates trade but in other ways causes a lot of unpredictability because you don't know when you do something whether you are going to get the result you expected or whether a third party is going to come in and stop the transaction. And this doesn't sound really like much of a problem until you think of the stories of all these small merchants who suddenly have their PayPal accounts locked, and they've got, you know, $40,000 sitting in a PayPal account that they can't access, and then they have to go through PayPal's dispute resolution service which can take them three months, by which time the business has folded.

So the advantage of the blockchain ecosystem is that those kind of situations can't arise. The payments are made, the payments stay made, and once you've been paid you know you've been paid. It's never going to get unwound or retroactively undone. And that's really, really useful for a large class of trade. Payments where you can't really trust that the money is there until really a month has passed or six weeks and then you pull it out into a different account and this kind of thing, that stuff is a very, very much tougher environment for merchants to make a living in because you never know for sure that you've got the money.

Edwina Stott: So Ethereum can do more than Bitcoin. One of Bitcoin's capabilities is as a digital currency that runs on blockchain, which can be sent peer to peer, from one person to another without the need for a third party like eBay or PayPal. Whereas Ethereum software is run by Ether, and smart contracts can be incorporated into the currency to program the money.

It's a lot to follow, and there are some tricky concepts to get your head around. But don't worry if you're not quite there. One of the very valuable points Vinay makes is around the way in which we use the internet, for example. We use it every day, you understand how to use it to get the information or communication you need, but you probably don't understand all the ins and outs of what's going on in your computer or smart phone or how it's being connected to the internet. This doesn't stop you from benefitting from it or from using it to find out answers to all those embarrassing questions.

But, regardless of what we understand, what's it going to be like to spend it?

And would you be comfortable paying for something using a cryptocurrency?

Person 1: Not if I don't know what it is, yeah, sorry.

Person 2: I basically do most of my shopping online, so yeah I guess, I wouldn't see the problem.

Person 3: I guess, I don't know, if it was the norm.

Person 4: Personally I wouldn't, I'm very conservative.

Edwina Stott: To address some of your fears, I thought it was essential that I put myself out there as a human guinea pig and take what I see as an essential step in researching what the future might be like.

Okay, thank you. So can I get a pint of beer please? Thank you so much. Can I pay for that with Ethereum please?

Bartender: Can do.

Edwina Stott: Perfect! Thank you so much, cheers.

I can confirm, that there's no need to worry, buying beer in the future is actually pretty good! I downloaded an app on to my phone which is known as a wallet, bought myself $10 worth of Ether, which landed in the wallet instantaneously. Then the bartender used a tablet to scan a code on the app/wallet, and it's just that simple!

But, Vinay Gupta, who has been named a Blockchain Fellow for the UK government's Digital Catapult centres, says Ethereum may change more than just your experience at the cash register.

Vinay Gupta: So in an ideal world the blockchain would be an instrument for transparency. You'd be able to say for anything in your environment you pick it up, you'll get a little 2-D barcode on the bottom of it, you feed it to your phone and your phone gives you the whole history of the object; where it's manufactured, where it was designed, who owns the patents if there are any, this kind of thing. So the hope is it will see businesses that are like fair trade but this kind of new form of fair trade who will be super transparent about all their manufacturing processes, environmental footprints and so on, and that we as customers will preferentially buy those things because they are transparent.

The hard question is whether we as consumers, as customers, will buy these objects. If you're being shown T-shirts and one of them has the entire history wrapped around it, do you want to know that history, or will you preferentially kind of say, well, I'd just going to buy a T-shirt and I don't really want to know the story? And if it turns out that we the public don't want to know these stories, even if people are pushing towards transparency and trying to create a fairer world using the blockchain, it will be very difficult for them to do because if the customers won't buy the stuff that has the transparency attached, it's just going to be one of these things which flares up for a little while and then goes away again.

Edwina Stott: What do you think it will take for mass adoption of Ethereum to happen?

Vinay Gupta: So Ethereum is a toolkit, it's a way of doing things, and it has the same level of generality as the World Wide Web. So any kind of general-purpose tool like this, you're always going to be in a position where it kind of becomes what people make it. And what we don't know is what individuals will do. Are they going to pick the path which is all about games, are they going to pick the path which is all about business-to-business supply chain transactions, are they going to go in some completely unexpected direction, wind up with something which is as radical as social media was, but in a direction that none of us have ever seen before?

I think we could do all kinds of very, very strange surprises because when you change the basic infrastructure of society, the world can change in ways that nobody foresees when they are building the infrastructure. You know, you kind of build the road but you've no idea what the destination is.

Edwina Stott: So in a way it's too soon to be able to see what Ethereum and blockchain will mean for the future.

Vinay Gupta: Yes. I think it parallels the internet. You know, the first phase of the internet, it was really just a place for exchanging ideas. You couldn't process credit card payments online, so there was no shopping. And there was this whole debate about would there ever be business on the internet or would it always be a non-commercial space. And that went on for a really, really long time. Nobody thought that the internet would become commercial. And then one day suddenly it was. Those kind of transformations, there are hard to predict. In 1994 if we had predicted Amazon, I don't think anybody would have seen it, and even when Amazon began to get rolling, I don't think anybody could have predicted Facebook. So there's always this element where society is unpredictable, the nature of the social process is that society is unpredictable, the future is very, very hard to figure out.

Edwina Stott: What's your biggest takeaway for Ethereum? What do you think the most substantial change that Ethereum is going to bring about will be in the future?

Vinay Gupta: I think that the really big change will be in global trade. Right now, getting things from another country, there is an enormous amount of paperwork if you are doing that as a business. You know, the tariffs that you have to pay and all the delays at Customs and all the regulation that goes with it, all that stuff is currently ordinary people filling in forms with months of their lives, just sitting there trying to get the stuff in and out of the country. And getting that stuff effectively computerised so that it becomes a transparent process—you stick the address on the parcel, you drop it in the mail and the rest of it gets worked out by machines—I think that will be genuinely life changing for everybody, because even if you're not directly doing the international trade yourself, the prices that you pay in the shops will be directly related to the amount of bureaucracy involved in import and export.

So I think that getting that entire international shipping mess straightened out will be the single biggest impact on blockchain. It's continuously surprising. You look at it today and you think you understand it, you come back in six months and it will surprise you. And I think it's likely to continue to do that for a good few years yet because it's one of the fastest moving technology fields I've ever had the chance to interact with. It's genuinely amazing.

Edwina Stott: And technologist Andreas Antonopolous, who we heard from earlier on, says that soon, there will be even more cryptocurrencies on offer.

Andreas Antonopolous: We are going to see an explosion of cryptocurrencies. What that means is we currently have more than 1,000, we will see tens of thousands, we will see hundreds of thousands of currencies or tokens or various forms of systems that use something like a token. And that explosion will be very similar to what we saw after the news media was kind of democratised with blogging. And so to ask how many cryptocurrencies will exist is the same as asking how many bloggers can exist. Pretty much anyone can build a cryptocurrency. It doesn't mean all of them are going to be interesting or successful. Most of them are going to have no economic value. But we are looking at tens of thousands and then hundreds of thousands of cryptocurrencies, in my opinion.

Edwina Stott: And do you think that's a good thing, that the market is going to be so saturated with them?

Andreas Antonopolous: Absolutely, yes. It's a wide open field, and each one of these tokens can have unique capabilities, it can participate in voting, it can distribute funds. These programmable currencies are very powerful. I think we're going to see a whole internet of money flourishing out of this.

Edwina Stott: Do you think people are going to look back on this and realise that this was a revolutionary time?

Andreas Antonopolous: It's hard to tell, I think, at this point. It does feel like something historical is occurring. I've seen this with previous disruptive technologies. I was around in the very early days of the internet, as it was coming out of university labs, and people were dismissing it and saying, yeah, that's never going to happen. And it happened, and it happened in a very historic away and much faster than anyone expected. So I expect we will see the same thing again with these digital currencies. I hear from others and I've felt it myself, that when you really grasp what exactly this technology can do and how it works, you get the same chilling feeling from the birth of the internet.

Edwina Stott: Earlier this year, renowned computer programmer and businessman John McAffee was the keynote speaker at the Blockchain Money Conference in London, and he made a vital point as to the future of cryptocurrencies.

John McAffee: Why am I even into the Bitcoin arena? Number one, because I see where alt currencies are going. Cryptocurrencies are here to stay, they will not go away, it is Pandora's Box, for good or ill. You will not shove this back in the box. And now that the box has been opened and we are using it, it will not go away.

Edwina Stott: So perhaps the main take-away is that nobody can put their finger on exactly what this technology will really mean for the future, but the chance that it will change the world seems pretty high.